EFFECT OF BANKRUPTCY ON A PERSONAL INJURY CASE

Plaintiff Files Bankruptcy

  1. A debtor’s cause of action is property of the estate.
  2. Schedules A/B & C should be amended to disclose the asset.
  3. File Motion/Application to be appointed as Special Counsel
  4. Prior to Settlement > File Motion with Fee Agreement
  5. Post Settlement > File Motion with Fee Agreement and Schedule of    Distribution Nunc Pro Tunc
  6. Comply with the following rules: Federal Rules of Bankruptcy Procedure: Rule 9019.  See:  https://www.law.cornell.edu/rules/frbp/rule_9019
  7. LBR 9019-1 (Page 111) Settlement.
  8. LBR 2016-1 (Page 34) Compensation of Professionals.
  9. Wait for Court approval to distribute.

Defendant Files Bankruptcy

  1. The Automatic Stay applies to a Defendant’s personal injury action. The Stay halts the commencement and continuation of judicial or other actions or proceedings that were commenced or could have been commenced against the debtor before the bankruptcy case.  11 U.S.C. § 362.
  2. Actions taken in violation of the stay – even without notices of the bankruptcy – are generally void ab initio and of no force and effect in the Third Circuit.
  3. Violations of the Section 362(k) of the Bankruptcy Code are sanctionable, including attorneys’ fees, and even punitive damages in appropriate circumstances.
  4. Section 362(d) permits a party in interest to modify the stay for cause after notice and hearing. 11 U.S.C. § 362(d).
  5. Bankruptcy Courts in the 3rd Circuit generally consider three primary factors in determining whether to grant a claimant relief from the automatic stay. The factors are: (1) whether continuation of the civil action will greatly prejudice either the bankrupt estate or the debtor; (2) whether the hardship to the claimant would considerably outweigh the hardship to the debtor if the stay remained in place; and (3) whether the claimant has a probability of succeeding on the merits.
  6. Plaintiff’s counsel should file a Motion for Relief from the Automatic Stay.
  7. The Order granting Relief from the Automatic Stay often limits relief to the amount of available insurance with the express provision that the Plaintiff is precluded from recovering any monetary damages from the Chapter 13 Estate and the Debtors personally.
  8. Further limited exceptions exist in 11 U.S.C. 523(a)(9). A discharge does not discharge an debtor from any debt: “for death or personal injury caused by the debtor’s operation of a motor vehicle, vessel, or aircraft if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”
  9. Plaintiff’s counsel should also file a Proof of Claim.

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